As luxury buyers take refuge in the rental market, sales brokers are being forced to adapt.
In the midst of a sluggish sales market, would-be buyers are turning to the high-end rental market to wait out the uncertainty. As a result, sales brokers have found themselves working with a shifting group of clientele and increasingly negotiating pricey rental deals.
“Rentals are not necessarily a segment of the business I have concentrated on,” said Sean Murphy Turner, a broker at Stribling & Associates. But “in a service industry, you service your client. […] That’s the turn it’s taken this year.”
Clients in the market for an apartment have been spotting sales listings that haven’t budged — and are looking to rent them instead, brokers said. This would have been a nonstarter not long ago, said CORE’s Elizabeth Kee, but more owners are now at least willing to have the conversation.
Kee is currently listing a Chelsea apartment for $5.2 million, but the same three-bedroom unit, which spans 3,000 square feet, is also available to rent for $25,000 a month. The rental listing notes it has a variable lease term.
It’s a negotiation tactic that highlights how brokers’ roles are changing. Concessions, for example, have been a fixture of the rental market. May marked the 36th consecutive month of a year-on-year rise in concession market share in Manhattan. During the month, nearly 38 percent of new leases included landlord concessions.
And the high end isn’t immune, given how much inventory is on the market. Many people are asking for flexibility in rental terms, Turner said. Among her current listings, is a Soho rental for $44,900 a month. Incentives can include agreements like paying for 12 months on a 13-month lease, the ability to get out of a lease in six months or to continue it at a guaranteed price. The latter can be appealing for landlords, too, who are able to lock in tenants for a longer period of time. For tenants who are ultimately looking to buy, there are also rent-to-buy agreements.
At The Real Deal’s New York showcase in May, Douglas Elliman’s Raphael De Niro summed up the change: “The fact that I’m co-broking with people from Great Neck on Manhattan rentals is crazy.”
The reasons for renting vary: waiting for market certainty to buy, moving abroad, making money off a vacant apartment. A common sentiment, however, appears to be uncertainty, brokers said.
“I think there are people that are holding off in purchasing because they don’t know where the market is going to go,” said Pamela D’Arc, a broker at Stribling & Associates. “There are people who would rather wait and see.”
But these prospective buyers still want to live in the type of unit they want to purchase — or the type of apartment they’re used to — before they take the plunge, she said.
To that end, for some would-be buyers, it’s an attractive option to rent now so their money is freed up when they choose buy, Turner said. That way, they can make an aggressive bid without being entangled in the logistics of selling an existing apartment.
“Everybody is trying to outguess the market,” Turner said. “There’s so much uncertainty about when the market is going to take off again.”
In the first quarter this year, as listing inventory climbed, the average sales price of luxury co-op and condo units was 15 percent lower than a year earlier, according to a Douglas Elliman market report. Meanwhile, in May, the median rental price for luxury units ticked up 3.8 percent.
On the other side of the deal, owners are also becoming more open to renting their apartments. The number of new leases in May for units with three or more bedrooms surged 20 percent since the same time last year, according to the Elliman report. (Meanwhile, in the first quarter, market share by number of sales for units with four or more bedrooms was 4.7 percent — down from 5.8 percent a year ago.)
Renting can be akin to test-driving a car. It’s the least expensive way for someone to get into a building or area they can afford but aren’t sure about, said Reba Miller of Berkshire Hathaway HomeServices.
In a similar vein, Corcoran’s Malessa Rambarran and Candace Milano pointed to the example of a client who was unsure about what he wanted to buy and looked instead several rentals in Soho around the $15,000 price point.
“‘We’re definitely seeing an increase of clients being more cautious,” Milano said. “Buyers are more sensitive to changes in the market.”